EDGAR Implementation, Unionization, and Strategic Disclosure

Abstract

Answering the call by Blankespoor et al. (2020) to study the effect of disclosure processing frictions on other stakeholders and decision contexts, this study examines how firms facing strong organized labor strategically respond to the implementation of the EDGAR system, which substantially reduced labor unions’ information processing costs and information asymmetry between union leaders and regular workers. Consistent with firms’ incentives to maintain an information advantage and bargaining position with labor unions, we find that firms reduce the disaggregation in financial statements, the likelihood and frequency of voluntary management forecasts, and the proportion of forecasts conveying good news. Our study is the first to investigate the implications of information processing costs to labor markets and to examine firms’ strategic disclosure responses to EDGAR implementation caused by concerns from other markets. It improves our understanding on the dynamic effects and real outcomes of shocks to disclosure processing costs beyond equity markets.

For enquiries, please contact Ms. Heidi Lam at heidilam@cuhk.edu.hk.